A letter of intent (zichron devarim) in real estate transactions is a preliminary document recording the parties’ agreement on essential terms. Understanding its legal status and the risks it carries is important for anyone involved in property transactions.
What is a Zichron Devarim?
A zichron devarim (literally ‘memorandum of things’) is an informal document, often signed at a meeting or property viewing, that records the key terms the parties have agreed to: price, property description, payment terms, and handover date.
Its name suggests it is a preliminary or informal document, but Israeli courts have sometimes given it the legal force of a binding contract.
Is it Binding?
The legal status of a zichron devarim depends on its content. If it is sufficiently detailed and reflects the parties’ intention to be bound, courts may treat it as a binding contract – even if the parties considered it preliminary.
This has surprised many parties who signed such documents expecting to negotiate further.
The Risks of Signing
Signing a zichron devarim without legal advice carries real risks. You may be bound by terms you did not fully consider. The document may not include protections you need (financing conditions, due diligence rights). And any subsequent formal contract must be consistent with the zichron devarim’s terms.
When to Use Letters of Intent Safely
If you want to record preliminary discussions without creating binding obligations, explicit language stating the document is non-binding and subject to execution of a formal contract is essential.
Better yet, consult with an attorney before signing any document related to a real estate transaction, however informal it appears.
The Attorney’s Role
An attorney can review any preliminary document before signing, advise on its legal effect, propose protective language, and coordinate the full transaction from the preliminary stage through to registration.
